Classic Bull Action

"When good news about the market hits the front page of the New York Times, sell." -- Bernard Baruch

Solid earnings reports from Google (GOOG) and IBM (IBM) have the bulls feeling optimistic this morning, but the bears are hoping for a sell-the-news reaction as we have been pricing in such news for weeks now. We've had a big, straight-up run, so the conditions are in place for some profit taking, but that has been the case for quite a while and it just hasn't happened.

The pattern of the market recently has been some early nervousness and then we find support an hour or so after the open and then close strong. Since the first of the year, we have not had a single close at the low. In fact, we have closed near the highs virtually every day, which is classic bull market action.

I've written quite a bit lately how the best approach to this market is to stick with the trend and to ignore the bears that keep trying to call tops. The bears have been convinced that sentiment is too frothy and the news not that great. Perhaps that is so, but I suggest that the time to be bearish is when there is actually some weak price action. Since we haven't even managed a weak close once this year, there is little reason to believe that the market is in trouble and ready to collapse.

The good earnings reports from GOOG and IBM are going to provide an excellent test of the market today. In the early going there is already some hesitancy in the indices and the bears are going to be quick to argue that these are company-specific reports and not indicative of a generally healthy market.

Of course the Apple (AAPL) report tonight will be the real test of the mood of this market. No stock has been as badly beaten up as this one lately and the issue is whether expectations are now so low that it will jump even on a mediocre report or will the change in character of this stock be confirmed? It is a roll of the dice, but I'm sure there are many who will be anxious to place a bet.

One of the easiest things to do in this market right now is to overthink the action. By any measure the market is acting very well. The bears can always find things to complain about, such as sentiment, overbought stochastics, big-picture economics and politics and so on. But there is nothing wrong with the way the market is moving other than maybe that it has gone up too far, too fast. Betting against the market on that basis hasn't worked very well in the last few years.

I'm sticking with my bullish stance until I see a concrete reason not to. A weak close and a sell-the-news reaction to good earnings would be negative, but I'm going to wait to see if that actually happens rather than try to anticipate it.

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